Case No: CO/1640/10
Neutral Citation Number: [2010] EWHC 2305 (Admin)
IN THE HIGH COURT OF JUSTICE
DIVISIONAL COURT
ON APPEAL FROM THE CITY OF WESTMINSTER MAGISTRATES COURT
District Judge Riddle

Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 17/09/2010

Before :

LORD JUSTICE LAWS
MR JUSTICE COULSON

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Between :

	WOLFGANG FRANK HERTEL	Appellant	
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	THE GOVERNMENT OF CANADA	1st Respondent	
	THE SECRETARY OF STATE FOR THE HOME DEPARTMENT	2nd Respondent	

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Mr John Jones and Mr Henry Legge (instructed by Sonn MacMillan Walker) for the Appellant
Mr Ben Brandon and Mr Richard Vallat (instructed by CPS) for the 1st Respondent
Ms Joanne Clement (instructed by Treasury Solicitors) for the 2nd Repondent

Hearing dates: 19 May & 30 July 2010
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Judgment
Lord Justice Laws :
INTRODUCTION 
1.	This is an appeal brought pursuant to s.103 of the Extradition Act 2003 (the 2003 Act) against the decision of District Judge Riddle on 4 December 2009 to send the appellant’s case to the Secretary of State for her to decide whether the appellant should be extradited to Canada.  There was also an appeal under s.108 against the decision of the Secretary of State of 1 February 2010 to order his extradition, but that is not independently pursued and I need say no more about it.  There are two points in the case.  (1) Is the appellant wanted for an extradition offence?  (2) Should his extradition be barred by reason of the passage of time?
THE FACTS
2.	The appellant has dual German/Canadian nationality.  He is aged 73.  He was arrested on a provisional warrant on 9 May 2009 and has since then been detained at HMP Wandsworth.  His extradition is sought by the Government of Canada, which is a Category 2 territory for the purposes of the 2003 Act.  In what follows I will refer to the Government of Canada as the respondent.  The case duly went before the extradition judge at the City of Westminster Magistrates Court (DJ Riddle) who gave a reserved judgment on 4 December 2009, as I have said, sending the appellant to the Secretary of State for a decision as to his extradition.  
3.	The appellant is a scientist and engineer who has worked in many parts of the world, in particular in Canada, Germany and Venezuela.  He was voted “Businessman of the Year 1984” by the Victoria Chamber of Commerce.  He has patented inventions on such matters as CO2-free electric energy generation and enhanced oil recovery with geothermal resources.  He has no previous convictions anywhere in the world. 
4.	It is said that he has committed offences contrary to the Canadian Income Tax Act.  The critical facts alleged may be reduced to a very short narrative as follows.
5.	At all material times the appellant was the President and directing mind of a company called International Electronics Corporation (“IEC”).  There was another company, Eurocana Hightech Research and Development (Canada) Ltd (“Eurocana”). It was owned by Michael Hertel, the appellant’s brother.  The essence of the respondent’s case concerns a payment of about $3.9m from IEC to Eurocana at the direction of the appellant.  It was described in company documents as “R & D”, and recorded as business expenses of IEC.
6.	The background to this payment was a series of transactions or apparent transactions concerning the purchase by IEC of a coal liquefaction plant in New Jersey and its sale on through an intermediary, a Liechtenstein company called Cugnot, to Eurocana for $4m.  The respondent says it was made to appear that Eurocana paid $4m for the plant, but the actual figure was much less.  Then Eurocana purported to sell the plant to IEC for $4m.  The respondent asserts that all these agreements were fraudulent, designed to justify the transfer of up to $4m by IEC to Eurocana.  It is said that the payment of $3.9m odd, being in fact made to provide a benefit to the appellant or his brother or perhaps some other party (but not IEC), gave rise to a charge to tax against the appellant under s.56(2) of the Canadian tax code, but this liability was dishonestly concealed from the Canadian revenue authorities.
THE EXTRADITION PROCESS
7.	The appellant has not been charged with any offences in Canada.  His extradition was sought pursuant to an information which had been laid on 5 February 1986, and an amended information laid on 22 April 1986, by Mr Glen Barras, a taxation officer.  The appellant says that this process was issued maliciously on the part of Mr Barras; but this accusation plays no part in these appeal proceedings.  Mr Barras is now dead as are three other witnesses or potential witnesses in the case.
8.	The appellant was arrested in this jurisdiction on a provisional warrant on 9 May 2009.  There is some controversy on the papers as to when the appellant had left Canada: 7 February, 13 February and 24 March 1986 are all canvassed.  He had not by any of those dates been arrested or charged with anything.  I shall consider the facts relevant to the arguments as to the effects of the passage of time when I come to confront that aspect of the case directly.
THE ISSUES
9.	The appellant’s amended grounds of appeal specified six grounds of challenge under s.103 directed to the District Judge’s decision.  Only two, however, survive; the others have either been abandoned, or amount to adjectival rather than self-standing arguments.  As I have foreshadowed the two live points are (1) that the conduct for which the appellant’s extradition is sought does not constitute an extradition offence or offences within the meaning of s.137(2)(b) of the 2003 Act; for reasons which will become apparent I will call this “the tax point”; and (2) that the appellant’s extradition is barred by the passage of time: s.82 of the 2003 Act: “the delay point”.  
10.	The tax point was not taken in the court below.  There is no contest but that the appellant is free to take it here.  It has, however, caused some logistical difficulties, whose consequence has been that this judgment is being delivered much later in time than the court would have wished, not least given that the appellant has been remanded in custody throughout these proceedings.  The appeal was first listed before my Lord and myself on 19 May 2010, when we heard full argument on the delay point.  However it became clear during the hearing that the tax point raised, or at least potentially raised, questions of taxation law which were by no means straightforward.  The appellant was armed with specialist tax counsel, Mr Henry Legge.  The respondent was represented by Mr Brandon who, while no doubt well up to speed on the law of extradition, is not a tax lawyer, though he strove in his skeleton argument to address the tax point.  The court required assistance from both sides on this part of the case.  We concluded that it could not be properly dealt with unless the respondent were given an opportunity to instruct specialist tax counsel to consider the matter, and, if so advised, to represent the respondent at a further hearing.  Accordingly we adjourned the case on 19 May.  It was not possible to restore it to court until 30 July 2010, when Mr Legge again appeared for the appellant alongside Mr Jones, and the respondent was represented by Mr Vallat, tax counsel, alongside Mr Brandon.  We heard dense and careful argument, and found it necessary to reserve judgment.
11.	I shall deal with the delay point first.  
THE DELAY POINT  
12.	By s.82 extradition is barred on time grounds if it would be unjust or oppressive to extradite by reason of the passage of time since the person is alleged to have committed the extradition offence or to have become unlawfully at large.  The legal approach to s.82 has been subject to some recent development, and we should consider the learning in some detail.
THE AUTHORITIES
13.	The leading recent authority is Gomes and Goodyear [2009] UKHL 21.   The appellate committee’s single joint report cites at paragraph 19 the earlier leading case of Kakis [1978] 1 WLR 779 in which Lord Diplock said this at 782-783:
“Unjust’ I regard as directed primarily to the risk of prejudice to the accused in the conduct of the trial itself, ‘oppressive’ as directed to hardship to the accused resulting from change in his circumstances that have occurred during the period to be taken into consideration; but there is room for overlapping, and between them they would cover all cases where to return him would not be fair.  Delay in the commencement or conduct of extradition proceedings which is brought about by the accused himself by fleeing the country, concealing his whereabouts or evading arrest cannot, in my view, be relied upon as a ground for holding it to be either unjust or oppressive to return him.  Any difficulties that he may encounter in the conduct of his defence in consequence of the delay due to such cases are of his own choice and making.  Save in the most exceptional circumstances it would be neither unjust or oppressive that he should be required to accept them.
As respects delay which is not brought about by the acts of the accused himself, however, the question of where responsibility lies for the delay is not generally relevant. What matters is not so much the cause of such delay as its effect; or, rather, the effects of those events which would not have happened before the trial of the accused if it had taken place with ordinary promptitude. So where the application for discharge under section 8(3) is based upon the ‘passage of time’ under paragraph (b) and not on absence of good faith under paragraph (c), the court is not normally concerned with what could be an invidious task of considering whether mere inaction of the requisitioning government or its prosecuting authorities which resulted in delay was blameworthy or otherwise. Your Lordships have no occasion to do so in the instant case.”
For convenience their Lordships in Gomes proceeded to refer to these paragraphs as Diplock para 1 and Diplock para 2.  Then at paragraph 26 and 27, after referring to a judgment of mine in La Torre v Italy [2007] EWHC Admin 137, their Lordships’ opinion states:
“26.  True it is that Laws LJ then added: ‘An overall judgment on the merits is required, unshackled by rules with too sharp edges.’  If, however, this was intended to dilute the clear effect of Diplock para 1, we cannot agree with it.  This is an area of the law where a substantial measure of clarity and certainly is required.  If an accused like Goodyer deliberately flees the jurisdiction in which he has been bailed to appear, it simply does not lie in his mouth to suggest that the requesting state should share responsibility for the ensuing delay in bringing him to justice because of some subsequent supposed fault on their part, whether this be, as in his case, losing the file, or dilatoriness, or, as will often be the case, mere inaction through pressure of work and limited resources.  We would not regard any of these circumstances as breaking the chain of causation (if this be the relevant concept) with regard to the effects of the accused’s own conduct.  Only a deliberate decision by the requesting state communicated to the accused not to pursue the case against him, or some other circumstance which would similarly justify a sense of security on his part notwithstanding his own flight from justice, could allow him properly to assert that the effects of further delay were not ‘of his own choice and making’.
“27.	There are sound reasons for such an approach.  Foremost amongst them is to minimise the incentive on the accused to flee.  There is always the possibility, often a strong possibility, that the requesting state, for want of resources or whatever other reason, may be dilatory in seeking a fugitive’s return.  If it were then open to the fugitive to pray in aid such events as occurred during the ensuing years – for example the disappearance of witnesses or the establishment of close-knit relationships – it would tend rather to encourage flight than, as must be the policy of the law, discourage it.  Secondly, as was pointed out in Diplock para 2, deciding whether ‘mere inaction’ on the part of the requesting state ‘was blameworthy or otherwise’ could be ‘an invidious task’.  And undoubtedly it creates practical problems.  Generally it will be clear one way or the other whether the accused has deliberately fled the county and in any event, as was held in Krzyzowski, given that flight will in all save the most exceptional circumstances operate as an almost automatic bar to reliance on delay, it will have to be proved beyond reasonable doubt (just as the issue whether a defendant has deliberately absented himself from trial in an inquiry under section 85(3) of the Act).  But it will often be by no means clear whether the passage of time in requesting the accused’s extradition has involved fault on the part of the requesting state and certainly the exploration of such a question may not only be invidious (involving an exploration of the state’s resources, practices and so forth) but also expensive and time consuming.  It is one thing to say – as Lord Edmund-Davies said in Kakis and later Woolf LJ said in Osman (No 4) and Laws LJ in La Torre – that in borderline cases, where the accused himself is not to blame, culpable delay by the requesting state can tip the balance; quite another to say that it can be relevant to and needs to be explored even in cases where the accused is to blame.”
Then at paragraph 29:
“…  The rule contained in Diplock para 1 should be strictly adhered to.  As the rule itself recognises, of course, there may be ‘most exceptional circumstances’ in which, despite the accused’s responsibility for the delay, the court will nevertheless find the section 82 bar established.  The decision of the Divisional Court (Hobhouse LJ and Moses J) in Re:  Davies CA 443/96, (unreported, 30 July 1997), discharging a defendant who had become unfit to plead notwithstanding his responsibility for the relevant lapse of time, may well be one such case.  In the great majority of cases where the accused has sought to escape justice, however, he will be unable to rely upon the risk of prejudice to his trial or a change in his circumstances, brought about by the passing year, to defeat his extradition.”
At paragraph 32 in Gomes the House referred to Woodcock [2004] 1WLR 1979 in which in paragraph 29 Simon Brown LJ as he then was said:
“There can be no cut-off point beyond which extradition must inevitably be regarded as unjust or oppressive.”
14.	Mr Jones for the appellant also referred us to Patel [1995] 7 Admin LR 56, where this was said:
“Wherever law is practised, justice is reproached by delay.  There is a real danger that those of us who have spent a life time in the law become inured to delay.  So too laymen associate the law with delay, and their expectation of it may harden them to the fact of it.  So the years trip off the tongue, and so we reach a position where a citizen may be surrendered to face a trial in another state for matters at least 9 years stale without examination of the reasons for the length of the delay or consequences of it…  So it is we are left with a delay period… of 9 to nearly 12 years, with yet some time to pass before trial.  It is salutary to look back over one’s own life to evaluate the real length of that period, so as not to regard it just as a figure on a piece of paper.”
THE DISTRICT JUDGE’S VIEW
15.	The learned District Judge below had little difficulty with the delay point.  He held as follows:
“I am satisfied that Dr Hertel is and has been a deliberate fugitive from justice in Canada throughout the relevant period.  It makes no difference that he was summonsed rather than bailed.  I have not thought it necessary or appropriate to seek an explanation as to what steps were taken to extradite this defendant from Germany: it may or may not be that Germany will extradite its own citizens to Canada.  It is clear the defendant was well aware his attendance was required in Canada.”
THE APPELLANT’S ARGUMENT
16.	This conclusion is vigorously contested by Mr Jones on the appellant’s behalf.  It is submitted (1) that the District Judge wrongly equated an awareness of the relevant proceedings in the requesting State with being a deliberate fugitive from justice:  and that (2) the District Judge should in any event have held that the appellant’s extradition would be unjust or oppressive having regard to the passage of time.  
THE FACTS
17.	The evidence primarily relied on by the respondent consists in two affidavits of Crown Counsel Janna Hyman, respectively sworn in June and November 2009.  The appellant has made a witness statement dated 15 April 2010.  The following facts emerge.
18.	As I have said an information was first laid against the appellant on 5 February 1986.  He had not by then left Canada, and he was aware of the investigation into the transactions in question from the outset.  His counsel met with State investigators on several occasions.  On 7 February 1986 (following the information laid two days earlier) a summons was issued and served on the appellant’s wife requiring his attendance at court on 24 February 1986.  He did not attend on that date.  His counsel produced a letter from his doctor dated 19 February 1986, stating that he had been in hospital suffering from hepatitis but was now at home.  The court proceedings were adjourned to a date in May 1986.
19.	There is no doubt that the appellant left Canada before the adjourned date.  The respondent has information from a confidential source that he was seen boarding a flight to the United States on 24 March 1986.  The appellant himself claims (witness statement, penultimate page (unparagraphed)) to have left for Venezuela “on or about 13 February 1986”.  He says he was unaware of the summons which had been served on his wife.  Even in the absence of cross-examination I find this extremely difficult to believe.  Not only was the summons served on his wife; counsel instructed on his behalf appeared at court on 24 February and deployed the doctor’s letter.
20.	On 7 July 1986 the appellant’s counsel gave an indication that the appellant intended to return to the jurisdiction of the court.  He failed to do so.  A warrant for his arrest was issued on 22 August 1986.  In October 1991 the warrant was quashed by the court, apparently as a matter of discretion, in light of assurances from the appellant’s counsel and his wife that he desired to return to Canada to “deal with matters”.  A further summons was issued.  A series of adjournments followed.  The appellant, however, never returned to the Canadian jurisdiction.  As I have said he was at length arrested in this jurisdiction on a provisional warrant on 9 May 2009.
CONCLUSION
21.	As I have shown, Gomes insists (paragraph 29) that “the rule contained in Diplock para 1 should be strictly adhered to”.  And paragraph 26 of their Lordships’ report shows how strict the requirement is.  Delay brought about by the fugitive’s fleeing the country, concealing his whereabouts or evading arrest cannot, save wholly exceptionally, enure to his benefit for the purposes of s.82 of the 2003 Act.  In my judgment this is a case where the rule applies; where the effects of delay were of the appellant’s “own choice and making”.  Mr Jones’ distinction between an awareness of the proceedings on the one hand, and a deliberate flight from justice on the other, which is of its nature fragile, collapses on the facts.  And nothing in the case of Patel, relied on by Mr Jones, can in my judgment soften the rigour of this conclusion. 
22.	There is nothing “wholly exceptional” about the case, and I also reject Mr Jones’ second submission that the District Judge should in any event have held that the appellant’s extradition would be unjust or oppressive having regard to the passage of time.  The Canadian jurisdiction to which the appellant would be returned is plainly fully equipped with all necessary procedural resources to deal with any risk of unfair trial resulting from the long passage of time since the material events.
23.	I would reject the appellant’s submissions on the delay point.
THE TAX POINT
24.	A person may only be extradited from the United Kingdom under Part II of the 2003 Act if he is wanted in relation to an extradition offence.  This is what is sometimes called the double criminality rule.  S.137 provides, so far as material:
“(1) This section applies in relation to conduct of a person if— 
(a) he is accused in a category 2 territory of the commission of an offence constituted by the conduct...
(2)  The conduct constitutes an extradition offence in relation to the category 2 territory if these conditions are satisfied— 
(a) the conduct occurs in the category 2 territory; 
(b) the conduct would constitute an offence under the law of the relevant part of the United Kingdom punishable with imprisonment or another form of detention for a term of 12 months or a greater punishment if it occurred in that part of the United Kingdom; 
(c) the conduct is so punishable under the law of the category 2 territory (however it is described in that law)”.
25.	The respondent’s case is that the conduct on which it relies would, if it was perpetrated in England, constitute the common law offence of cheating the Revenue.  It is required to establish this proposition to the criminal standard of proof: s.206 of the 2003 Act.  So much was not contested before us.  It does not of course mean that the conduct itself must be proved in the extradition proceedings, to the criminal or any other standard.  What must be proved is that the conduct, if it were established, would constitute the extradition offence relied on, here cheating the Revenue.
26.	That position reflects the treatment by their Lordships’ House in the leading case of Norris [2008] 1 AC 920 of a distinction which is critical to the operation of the double criminality rule.  In their composite opinion their Lordships said this (paragraph 65):
“It is possible to define the crimes for which extradition is to be sought and ordered (extradition crimes) in terms either of conduct or of the elements of the foreign offence. That is the fundamental choice. The court can be required to make the comparison and to look for the necessary correspondence either between the offence abroad (for which the accused’s extradition is sought) and an offence here, or between the conduct alleged against the accused abroad and an offence here. For convenience these may be called respectively the offence test and the conduct test. It need hardly be pointed out that if the offence test is adopted the requested state will invariably have to examine the legal ingredients of the foreign offence to ensure that there is no mismatch between it and the supposedly corresponding domestic offence. If, however, the conduct test is adopted, it will be necessary to decide, as a subsidiary question, where, within the documents emanating from the requesting state, the description of the relevant conduct is to be found.”
After a full review of authority the House concluded (paragraph 87) that “[t]he language of section 137 is... consistent with either test”, but that (paragraph 91) “the wider construction [viz. the conduct test] should prevail”.  Clearly the application of this approach requires a notional transposition of the conduct alleged from the requesting to the requested State.  In explaining how this is to be effected, their Lordships at paragraph 97 found assistance in the judgment of Duff J in the Canadian case of Re Collins (No 3) (1905) 10 CCC 80:
“[I]f you are to conceive the accused as pursuing the conduct in question in this country, then along with him you are to transplant his environment; and that environment must, I apprehend, include, so far as relevant, the local institutions of the demanding country, the laws effecting the legal powers and rights, and fixing the legal character of the acts of the persons concerned, always excepting, of course, the law supplying the definition of the crime which is charged.” (p. 103)
27.	This learning demonstrates the central importance, for the purpose of s.137(2)(b) of the 2003 Act, of two elements: the conduct alleged (and notionally transposed to this jurisdiction), and the relevant English law.  Now, Mr Vallat initially submitted (respondent’s tax skeleton paragraph 2) that
“asking whether there would have been a UK tax liability is the wrong approach.  The correct approach is to treat the tax liability as, essentially, part of the background, a fact that needs to be proved to establish liability, but not part of the criminal conduct.”
I was at first mystified by this.  At length however it became clear that Mr Vallat was merely emphasising what should no doubt be obvious, namely that the appellant is not of course to be extradited for failing to pay tax due, but only if the conduct relied on by the respondent would establish an extradition crime if it took place here.  In particular, as I have stated, the respondent must prove that the conduct, if it happened here, would constitute the offence under English law of cheating the Revenue.  A failure or omission to pay tax due (whether on the part of the proposed extraditee or some other party) is indeed “part of the background, a fact that needs to be proved to establish liability”, since if the conduct relied on does not disclose such an unmet liability, the Revenue would have been cheated of nothing. 
28.	Against this background I may enter into the details of Mr Vallat’s case on the tax point.  He advanced three categories of tax charge which, he submits, potentially arise on the facts alleged (had they happened here), so as to give rise to a UK tax liability of which it may be shown that the Revenue would have been defrauded.  The first is a charge to corporation tax on IEC, arising on the footing that IEC was preparing to seek a tax deduction in respect of the payment to Eurocana to which it was not entitled.  The second is an employment income charge, arising on the footing that the appellant was acting as a director of IEC and was extracting a profit from the company for his own purposes.  The third is a distribution charge, arising on the footing that the appellant was acting as a shareholder in directing the payment.
A SHORT ANSWER?
29.	At the end of the argument it seemed to me that there might be a short answer to the whole of Mr Vallat’s case on the tax point, as follows.  As I have indicated Mr Vallat found it necessary to advance these three alternative potential tax scenarios.  The respondent has to establish that the conduct alleged would constitute the offence of cheating the Revenue.  If the basis for doing so rests on three alternatives, then no single basis is securely established, unless it is said that any of the three is demonstrated without more.  But Mr Vallat does not, as I understood him, distinctly submit that any of the three is so demonstrated.  If he did, the others would be no more than the fifth wheel of the coach and he would have no reason to advance them.  
30.	If Mr Vallat can show no more than that any of the three scenarios might be made out if the alleged facts were replicated here, he will not have demonstrated that any of the three would be so made out; and therefore he would not have proved, to the standard required by s.206 of the 2003 Act, that that the conduct relied on by the respondent would, if perpetrated in England, constitute the common law offence of cheating the Revenue.  Accordingly s.137(2)(b) would not be satisfied and the appellant would be entitled to be discharged. 
31.	I apprehend Mr Vallat would accept this logic.  His riposte is that the facts alleged must constitute at least one of the three scenarios.  But this encounters a further difficulty.  If it is not possible to show that the facts without more definitively constitute one of these scenarios, it must be necessary to draw inferences from the facts in order to conclude that any one of them is actually made out.  But what inferences?  In this context (as in most) the court is entitled to draw proper inferences, that is to arrive at conclusions which, though not stated in the expressed facts, are in effect dictated by them.  As Mr Jones for the appellant submitted, the court is not entitled to speculate.  But if such a proper inference were available and, once it was drawn, would lead the court to conclude that one of the three scenarios were established, Mr Vallat would have established the extradition offence on that basis; and, again, the others would be no more than the fifth wheel of the coach.  But as I see it that is not the position. 
32.	However it would clearly be wrong to leave the matter there.  We need to consider, in concrete terms, what is and what is not established by the facts relied on by the respondent material to the offence of cheating the Revenue if the facts had happened here.  I will deal with Mr Vallat’s three scenarios in turn.
CORPORATION TAX
33.	Mr Vallat submits that it is to be inferred from the dishonest misdescription of the payment to Eurocana as “R & D” or “business expenses” that IEC was preparing to seek a deduction, for tax purposes, in its trading profits by the amount paid to Eurocana.  Given that the payment was made at the appellant’s direction for purposes of his own, IEC would not have been allowed any such deduction: Taxes Management Act 1970 s.130(a).
34.	But as Mr Legge points out, nothing in the facts alleged suggests that IEC would have been liable to pay tax but for the payment to Eurocana.  There is no allegation that IEC intended to deploy the payment as a deduction from its corporation tax bill, or that the appellant cheated or sought to cheat the Canadian Revenue by causing the tax due from IEC to be misdeclared.  Mr Vallat’s case under this head is nothing but speculation, and my impression was that he pressed it very lightly in the course of his submissions.   
EMPLOYMENT INCOME CHARGE
35.	The argument here is that in directing the payment to Eurocana the appellant was acting as a director of IEC and was extracting a profit from the company to his own advantage.  In that case Mr Vallat submits that a charge to tax would arise under Schedule E Case I (in the UK tax legislation effective in 1984) on the footing that the payment was an “emolument”.  Emoluments included “all salaries, fees, wages, perquisites and profits whatsoever” (Taxes Management Act 1970 s.183).
36.	There are a number of difficulties here.  First, in order to be taxable as an emolument the benefit received must be money or money’s worth (see Tennant v Smith [1892] AC 150).  But there is no assertion by the respondent that by virtue of the payment to Eurocana the appellant received any benefit by way of money or money’s worth.   
37.	However Mr Vallat submitted, graphically enough, that where a person takes money out of a company, he does so either as a director (in which case an employment income charge to tax arises), or as shareholder (in which case a charge to tax on a distribution in respect of shares arises: see the next heading), or he is stealing the money.  Accordingly, as regards the claim of a charge to tax upon an employee’s emolument, he submitted that it is enough that the respondent asserts that the appellant (being a director of IEC) procured that the payment to Eurocana be made.  Mr Vallat cites Glynn v CIR [1990] STC 227, per Lord Templeman at 231f.
38.	But Lord Templeman does not support so wide a proposition.  Indeed he said at 231f:
“Money may also be expended indirectly for the benefit of an employee without being taxable; for example, if a contract of service does not provide for medical expenses to be paid and the employer does not normally pay medical expenses the employer may, for compassionate or other reasons, as a special case, voluntarily pay the medical expenses of transporting and treating a child of the employee.  The expense if not contractual and if lacking the elements of expectation and continuity would not be taxable.”
39.	Moreover it is settled law that the payment must be made “in reference to the services the employee renders by virtue of his office, and it must be something in the nature of a reward for services past, present or future”: Hochstrasser v Mayes [1959] Ch 22 per Upjohn J at 33, approved by Lord Simonds in the House of Lords ([1960] AC 376, 387).  There is no suggestion that the payment to Eurocana was made under or pursuant to a contract of employment between IEC and the appellant.  Nor is there any suggestion that it was otherwise made “in reference to the services [the appellant rendered] by virtue of his office”.  In short there is in my judgment no inference as to the circumstances or purpose of the payment to Eurocana which Mr Vallat might be entitled to ask us to draw which would bring the case within the scope of an employment income charge to tax.   
40.	Mr Vallat has an alternative argument on this part of the case, to the effect that funds applied for a director’s benefit may constitute “benefits in kind” (dealt with in the then legislation by s.61 of the Finance Act 1976).  Although under this head there is no requirement of “money or money’s worth”, it must still be shown that the benefit is provided to the taxpayer “by reason of his employment” (Finance Act 1976 s.61(1)(a)).  But no such fact is asserted or relied on by the respondent.
DISTRIBUTION CHARGE
41.	Here the argument is that the appellant directed the payment to Eurocana as shareholder.  Mr Vallat submits that a payment out of the company procured by a shareholder is to be treated as a payment to the shareholder, and accordingly falls to be treated as a distribution in respect of shares and therefore subject to a charge to tax under Schedule F (in 1984).  He refers to an observation in Noved Investment Co [2006] STC (SCD) 120 at paragraph 42 that “the exercise by a shareholder of a right to require a payment to a third party, and the subsequent payment out of the assets of the company to the third party would be a payment in respect of a share even though not made to the holder”.    
42.	But Noved is with respect a doubtful vade mecum for the purpose of the present case.  It concerned a complex tax avoidance scheme giving rise to an argument that a payment to a shareholder was not a distribution “in respect of shares” because the payment was made pursuant to a power inserted in the Articles of Association of the company specifically for the purpose.  The reasoning in the case has to be viewed in that context.
43.	There are other difficulties.  Obviously a charge to tax under this head could only arise if it were demonstrated that the appellant was a shareholder in IEC.  But the material before the court going to that question is unclear and equivocal; part suggests he was, part suggests he was not a shareholder.  Thus Janna Hayman’s affidavit of 11 June 2009 suggests at paragraph 39 that the appellant owned the shares in IEC for all but a month, during which they belonged to a Mr Alexander from whom the appellant then re-purchased them.  On the other hand a draft “information to obtain a search warrant” prepared for the respondent asserts (paragraph 3(a)(v)) that the shares are held by a company called AB Sixteen Holdings Ltd, of which however the appellant was the president.  As I have said we are limited to proper inferences, that is conclusions which, though not stated in the expressed facts, are in effect dictated by them.  We cannot pick and choose between different pieces of evidence; certainly we cannot do so in order to realise a result which favours the respondent. 
44.	That is not the end of it.  Mr Legge submits that the transfer of funds from IEC to Eurocana was done by the company (IEC), acting through its board of directors.  The board is not an agent for the shareholders.  It follows that there is no reason to treat this act of the company as if it were done in furtherance of the rights of a shareholder.  Mr Legge submits also that if there were a chargeable distribution, the charge to tax would fall on the recipient (Eurocana) rather than the shareholder (the appellant).  He cites ss.232(1) and 284(2) of the Income and Corporation Taxes Act 1970.  Mr Vallat accepts that if this scenario is to work in his favour, there must be a distribution to the appellant.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
45.	These are, to say the least, formidable difficulties.  Perhaps Mr Vallat might escape them if the asserted facts showed that IEC had distinctly placed the relevant funds at the disposal of the appellant as shareholder and the appellant had then directed a payment to Eurocana.  But while Mr Vallat canvasses this as a possibility, it is not in fact any part of the conduct relied on by the respondent.  Mr Vallat’s case must again depend on speculation.  
GENERALLY
46.	In relation to all three scenarios the respondent has not in my judgment established (certainly not to the standard required) that the conduct alleged, if transposed to the United Kingdom, would involve or generate a charge to tax whose concealment by the appellant would then amount to the offence of cheating the Revenue.  The critical area, of course, concerns the payment to Eurocana.  In order to tie the payment into any putative UK tax liability, Mr Vallat is driven to offer up what is no more than speculation as to its circumstances and purpose.  That is an impermissible exercise.  The case is rendered more acute, I think, by reason of the fact that in scenarios (2) and (3) the respondent seeks to find a liability to tax on the appellant’s shoulders arising out of a payment to another – Eurocana.  The law recognises that there will be cases where A has directed a payment out of company B to C in which a charge to tax falls on A.  But if that is to happen (in the context both of an employment income charge and a distribution charge) such a payment must enure for the benefit of A, the director or shareholder sought to be charged.  The payment will not enure for the benefit of A merely because it goes where A chooses.  It has to be shown that the payment provides some material and objective advantage to A.  That was not done on the facts alleged here.
47.	Mr Legge submitted that the very complexity of Mr Vallat’s various scenarios told against the possibility that an offence of cheating the Revenue might be got out of the conduct relied on.  As I understood it, his point was that the subtlety of the analysis required was such that it was simply unrealistic to ascribe the conception of such a process to the mind of a dishonest tax-evader.  I see no reason to take so modest a view of the capacities of tax cheats.  The true point, and the recurrent theme of this judgment on the tax point, is that Mr Vallat’s scenarios require factual assumptions to be made which cannot be justified as proper inferences from the conduct stated to be relied on.
48.	Before leaving the principal issues on the tax point I should mention a submission advanced in paragraph 26 of the Secretary of State’s skeleton argument.  It is said that given the conduct test approved in Norris, “it is irrelevant whether or not the alleged transactions would give rise to personal liability for income tax under UK tax law”.  It is enough (paragraph 28) that the conduct alleged demonstrates the making of false statements in an income tax return, and evading the payment of tax, purely in the context of the tax law of Canada, once it is shown that such misstatements or evasion would, in a purely English context, amount to cheating the Revenue.  I think this misunderstands the conduct test.  For the reasons I have given it is not shown that the conduct, transplanted here, would constitute the actus reus of the UK law offence of cheating the Revenue.  I do not think that this conclusion is undermined by Duff J’s reference (approved by the House of Lords) to the transportation of the “environment [which] must... include, so far as relevant, the local institutions of the demanding country, the laws effecting the legal powers and rights, and fixing the legal character of the acts of the persons concerned”.      
THE HILLSDOWN ARGUMENT
49.	This was by way of an addendum to Mr Legge’s submissions on the tax point.  I propose to deal with it shortly, since for the reasons I have already given in relation to the tax point, if my Lord agrees with them, the appeal must be allowed.  The appellant’s argument runs as follows.  On the facts alleged by the respondent it appears plain that the appellant procured the payment to Eurocana in breach of his fiduciary duty as a director of IEC.  In those circumstances Eurocana would have held the money paid as constructive trustee for IEC: Rolled Steel [1986] 1 Ch 246.  In those circumstances Hillsdown Holdings [1999] STC 561 supports the proposition that the beneficial interest in the money paid never passed to Eurocana: see in particular per Arden J as she then was at 572a.  It makes no difference, says Mr Legge, whether or not the money was repaid by Eurocana.  There is as it happens no statement in the facts relied on whether or not the money was so repaid.
50.	This argument may be right, but I have an uneasy sense that, just like arguments advanced by the respondent which I have rejected, it requires more facts than are stated or can be properly inferred.  Mr Vallat submits that the payment was valid for the purpose of giving rise to a tax charge, and relies on certain observations of Chadwick LJ in Venables v Hornby [2002] STC 1248 at paragraphs 26 – 36, distinguishing Hillsdown and indicating that the precise statutory context had to be examined in order to determine whether an ultra vires payment was caught by the tax charge in question.  
CONCLUSION
51.	I would allow the appeal on the tax point.
Mr Justice Coulson:
52.	I agree.